Altria Group's Stock Rally: A Mixed Outlook Ahead

Altria's stock is hot, up 30% in 2024, driven by a strong dividend and resilient earnings. However, looming challenges from market competition may raise concerns for future growth.

Date: 11-02-2025

AI Rating: 6

Altria's Stock Performance has seen a significant uptrend lately. With a nearly 30% rise in its share price for 2024, the total return measured at 41% showcases the strength of its high-yield dividend. Investors in the dividend community should feel reassured by this performance.

Revenue Growth is subtle, as Altria continues to derive a hefty $10.8 billion, which is 91% of its operating profit, from smokeable products. Although this model provides slow and steady earnings growth, the company faces a long-term sustainability issue.

Dividend Payout Ratio stands at a comfortable 80% of earnings. The stock currently yields 7.7%, indicating that despite market pressures, dividends are well-supported. Analyst estimates predict an average earnings growth of 3.5% annually over the next three to five years, coupled with a typical dividend raise of around 4% if conditions remain stable.

However, there are challenges ahead. Altria's management has reduced smoke-free product growth targets due to competitive pressures from illegal vaping products. These illicit items comprise over 60% of the vaping category, posing risks to future market share. Shareholders should be aware that while the dividend is secure for now, if market conditions do not improve, the stock may face damping effects on its long-term performance.

Price Ratios reveal that Altria's price-to-earnings ratio stands at approximately 10, lower than the broader market. Nevertheless, Altria's low growth rate raises concern about long-term prospects. The walk-back of smoke-free goals signifies increased risk to the company’s ongoing operations as this business segment remains integral to its profitability.

In summary, while Altria Group offers decent dividends and steady earnings for the moment, investors should weigh these factors against the potential headwinds to growth and market share. For total return investors, this might warrant a hold position, while those solely focused on dividends might find it a modest buy.

Stocks: MO